Firm Diversification in the European Union: New Insights on Return to Core Business and Relatedness

Abstract

According to ex-ante expectations, one effect of the increased competitive pressure within the Single Market was to drive firms to reduce diversification and refocus on their core business. This paper addresses two main questions: the extent and the purpose of multi-product strategies. Using a large database of 223 leading manufacturing firms in the EU, we document whether EU leaders reduced diversification over the decade 1987-1997. We then investigate if firms have de-diversified by re-focussing around a core of related activities, testing for alternative measures of "core" and "relatedness". Our results confirm that firms readjusted corporate structures around one (or more) core(s) of related activities.Firm diversification, European integration, Return to Core